I was under the impression that royalties would be paid on the end sale (store) price, which is obviously not true and would probably be an accounting nightmare except for possibly ebook sales direct to the consumer.

I do not understand why harlequin would offer a reasonable (better than many?) royalty and then go to such lengths to get some of it back. Would seem simpler to just start a subsiduary offering lower rates and recomending it to authors that they did not feel they wanted to keep.

Also if I am reading the article and comments correctly, the whole thing smacks of collusion and fraud. Cannot charges be made on these grounds that would make a civil suit easier to settle?

I do not understand why harlequin would offer a reasonable (better than many?) royalty and then go to such lengths to get some of it back.

They didn't.

All they did was follow the contracts.

The digital rights were held with a wholly owned subsidiary, and it resulted in very low royalties. This was presumably one reason why Harlequin decided in 2011 to offer a blanket 15% royalty rate on ebooks, including older ones.

Odds are also pretty good that they were using the foreign subsidiary for tax reasons and/or to better handle international rights. Unlike most publishers, Harlequin operates internationally, so when you sign with them that includes all international rights. (Note: They're a Canadian company, not US.)

Quote:

Originally Posted by speakingtohe

Also if I am reading the article and comments correctly, the whole thing smacks of collusion and fraud.

You're mostly reading what the plaintiff's lawyers want you to read.

It's unclear at the moment who should have been paid what, let alone how many authors are genuinely affected and to what extent. (Again, I expect it's relatively small amounts.)

There is no "collusion," because they were working with a subsidiary (and that's perfectly legal). There is no "fraud," because it was all in the contracts.

So they could have given the rights to the subsidiary for free to avoid paying any royalties and that would be 'perfectly legal'?

From what I can tell, and note that I have not seen the contracts in question:

The authors signed with the subsidiary at the 6-8% rate.

The contracts with Harlequin (not the subsidiary) said "with unspecified digital rights, you get 50% of what Harlequin receives." Since what Harlequin got was 6-8% from its subsidiary, they cut that in half for those ebook royalties.

Harlequin did not take any additional steps to "avoid paying royalties." The reality is that ebooks weren't even a consideration in 2004, let alone 1999.

In other words, as long as they abided by the contracts, they paid the correct royalty rates.

The lawsuit doesn't allege criminality or fraud or collusion. It's merely a dispute over whether it is valid for Harlequin to treat the subsidiary as an actual company in terms of the royalty payments stipulated in the contract.

I did look at the previous page, and I also looked at the article. It mentions only electronic or digital rights. Although eBooks existed, I used to read them on a Palm when I was in High School, they were not commonplace and this was before they were a normal part of a writer's contract. My first contract in 2010 although for print publication only, did specifically mention eBooks as well as electronic and digital rights. My last contract had a lot more focus on eBooks although it too was print only. I have yet to look at eBook only publishing although I expect I will get there quite soon.

My father has published a lot of books, all print media, and his contracts for the period prior to 2004 don't specifically mention eBooks.

I am just curious as to what anyone who has books published that are now out of print and who had no contractual arrangement about ePublishing would expect to gain from a law suit. Harlequin denies that a legal action has been started, not something that they would be likely to do if it wasn't true. I find the whole thing a bit dubious on several levels.

I do not understand why harlequin would offer a reasonable (better than many?) royalty and then go to such lengths to get some of it back. Would seem simpler to just start a subsiduary offering lower rates and recomending it to authors that they did not feel they wanted to keep.

They want a high royalty rate in the contract to convince authors to sign.

They want to pay the authors as little as possible, because they increase their own profits that way.

They want to do this through as many layers of obfuscation as possible to keep those authors signing with them, and make any action against Harlequin difficult.

Whether their method of filtering the royalties paid to authors was legal, is something for the court to decide.

Quote:

Also if I am reading the article and comments correctly, the whole thing smacks of collusion and fraud. Cannot charges be made on these grounds that would make a civil suit easier to settle?

It's not quite "collusion" if a company makes a subsidiary for the sole purpose of skimming profits away from other interested parties, in this case, authors. And I think "fraud" is assumed in the lawsuit but may not be part of the specific charges filed. "Fraud" may be the catchall when you don't have more specific claims.

From what I can tell, and note that I have not seen the contracts in question:

The authors signed with the subsidiary at the 6-8% rate.

The contracts with Harlequin (not the subsidiary) said "with unspecified digital rights, you get 50% of what Harlequin receives." Since what Harlequin got was 6-8% from its subsidiary, they cut that in half for those ebook royalties.

I don't understand your math. If the author was supposed to get 6-8% from the subsidiary, and Harlequin got was 6-8% from its subsidiary, at most you can argue that the authors would get 6-8% of the 92-94%. How do you get their royalties cut in half if they didn't sign with Harlequin?

I don't understand your math. If the author was supposed to get 6-8% from the subsidiary, and Harlequin got was 6-8% from its subsidiary, at most you can argue that the authors would get 6-8% of the 92-94%. How do you get their royalties cut in half if they didn't sign with Harlequin?

But Kali Yuga was saying that the authors in question signed with the subsidiary.

Some authors signed with Harlequin Enterprises B.V. or Harlequin Books S.A.

In turn, Harlequin Enterprises B.V. and Harlequin Books S.A. licensed the books to the parent company.

The contract supposedly says that miscellaneous digital rights get 50% of the royalty that the parent company received. I haven't seen the contracts, but I'm guessing they say that the authors get 100% of the received royalties for print.

Thus for print they got 6-8%, for any unspecified digital rights they got half that.

Some authors signed with Harlequin Enterprises B.V. or Harlequin Books S.A.

In turn, Harlequin Enterprises B.V. and Harlequin Books S.A. licensed the books to the parent company.

The contract supposedly says that miscellaneous digital rights get 50% of the royalty that the parent company received. I haven't seen the contracts, but I'm guessing they say that the authors get 100% of the received royalties for print.

Thus for print they got 6-8%, for any unspecified digital rights they got half that.

This guy seems to know more.
The contract said that they get 6-8% for print, with no parent company involved and 50% of what the subsidiary got for digital rights.

The Swiss subsidiary isn't allowed to distribute ebooks so all they can do license them. And they passed the license to the parent company only asking 6-8%.

The author of the article points out 4 things:

Quote:

1. [...]And yet... the difficult thing for Harlequin is going to be explaining why, if Harlequin Switzerland could be the publisher for the paperback books, why couldn't it also be the publisher for the e-books? Harlequin is going to have a tough time explaining that one.
[...]
2. [...]Harlequin Switzerland had demonstrated that, at least at first glance, it thought the reasonable rate for licensing an e-book to be published was 50%. "Sales" of e-books are, upon investigation, actually licenses.
[...]
3. Harlequin wouldn't let authors negotiate their deals: they were take-it-or-leave-it. The technical term for that is "contracts of adhesion". Although it's different from state to state in its details, there's a contract law principle that says contracts of adhesion have to be reasonable and can't contain crazy terms.

The Harlequin contracts contained a clause saying that the rights could be assigned within the Harlequin family at Harlequin's sole discretion. Harlequin is relying on this to say they were allowed to do what they did. Maybe so, but this principle of law would also hold that Harlequin would have to be reasonable in exercising its rights to do so. Otherwise they should have given people the chance to negotiate that clause away. They didn't and so that becomes another, albeit lesser, point for the authors.

4. The authors argue that Harlequin Switzerland was just a tax shelter and Harlequin Enterprises was really fulfilling all the obligations of a publisher. Example: Harlequin Enterprises was marked on the copyright pages of the book as "publisher". This is going to matter a lot. If two companies run themselves as a joint unit when it's convenient, they have to be treated as a joint unit when it's inconvenient.

The one that looks big on paper, and has gotten a lot of attention, is the inclusion of more allegations to back up the argument that HS is nothing more than a shell for HE. The result of this argument, if the authors win, is that HE will be considered to be the Publisher under the contracts. That would make the 50% royalty payable on the amounts received by HE. Imagine an e-book with a $5.00 cover price. Amazon takes 30% or $1.50, leaving $3.50 per copy. If the authors are successful, they would get $1.75. Up to now they've been getting about $0.12. So that's a big difference.

They are arguing a doctrine called "alter ego" to make this claim. Unfortunately Batman is not involved. The alter ego argument basically holds that where you have two companies but one is basically a shell that has no independent operation, it's only fair to treat them both as the same company so that they can't do inter-company contracts that operate to deprive you of money you're owed. In order to make that argument, the authors basically have to show that HE acted as though HS was under its control. And they make some pretty compelling claims to this effect, including:

HE referred to HS as being one of its "offices"
HE referred to HS's accounting department as being "our accounting department"
HE told the authors that it was asking them to sign contracts with HS in order to rationalize its business procedures and wouldn't prejudice them or put them in a worse position contractually.
HE handled all administrative tasks for HS, including contract drafting and administration. Although HS sent the royalty statements, HE handled all followup questions.
When authors wanted to obtain reversion rights for their books, which would terminate the publishing contracts and allow the authors to resubmit them elsewhere, authors had these discussions with HE. If HE's staff approved of the decision, they would prepare the documents for HS to sign.

Quote:

But to me, the bigger issue is the one that isn't really fleshed out in either the old or the new Complaint: that the 6-8% royalty itself isn't equitable. That is, the authors are contending that even if the court decides that the HE-HS contract gets to be upheld, that doesn't end the conversation. Instead, they would have the court determine whether the 6-8% rate in that contract was fair to the authors, on whose behalf HS was negotiating when it licensed those rights.

That second one *is* big.
When a company negotiates for somebody else, they are (legally) expected to get reasonably fair terms. Courts tend to look to comparable deals in the same industry as benchmarks and there are a *lot* of other benchmarks to look at; Smashwords, Amazon, Apple...

The court might decide that HE should have been paying HS something closer to 70% (netting the authors 35%) instead of 6-8% (netting the authors 3-4%). So even if the contracts between HS and HE are upheld, the authors may still have a legal path to victory.

I don't think one needs to take a balanced view of all situations. Sometimes one side is right and one side is wrong. I think that's the case here.

Regardless, this part of Kali's argument:

Quote:

And no, the court is not going to find that Harlequin should have paid 70%, just because Amazon offered a high payment to self-publishers. That's patently absurd.

is clearly correct.

Amazon simply offer a storefront, it is up to the authors to do everything else.
My guess would be that the vast majority of sales that a Harlequin author gets are due to the Harlequin branding, rather than their own person reputation. Harlequin are entitled to charge for that branding.